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A STUDY ON THE WORKING CAPITAL MANAGEMENT OF
MADRAS CEMENTS LIMITED
Report submitted in partial fulfillment of the requirements
For the award of degree in
Master of Business Administration
Submitted by
Bala venkatachalam.s
Register no: 3511110836
Under the guidance of
DR.V.BALASUBRAMAIAN
Apr – May 2012
Page 1
Reg No – 3511110836
DECLARATION BY THE CANDIDATE
S.BALAVENKATACHALAM
Reg No – 3511110836
I MBA
SRM UNIVERSITY
CHENNAI
I hereby state that the report entitled, “A study on the working
capital management of Madras Cements Limited” was undertaken at
Madras Cements Limited (corporate head office) , R k salai,
Mylapore, Chennai, submitted to SRM UNIVERSITY, Chennai in
partial fulfillment of Master of Business Administration Degree is a
record of original work done by me and no part of this internship
report has been submitted for the award of any other Degree,
Diploma, Fellowship or other similar studies.
Page 2
ACKNOWLEDGEMENT
I put forth my heart and soul to thank The Almighty for being with me all
through my achievements, success and failures.
I express my sincere and whole hearted gratitude to the management of
Madras Cements Limited, Chennai for giving me a golden opportunity to
pursue a valuable project.
I extend my gratitude to Mr.Ramanarayanan (Manager-Accounts) for
guiding and helping me to solve all kinds of queries regarding the project
work. I would also like to thank him for his valuable suggestions and constant
encouragement at every step of my project work.
I sincerely thank Dr.jayashree suresh, SRM UNIVERSITY, for her
encouragement.
I extend my deep sense of gratitude to Dr.v.Balasubramanian, Faculty, and
SRM UNIVERSITY for providing support guidance and valuable ideas which
helped me to complete this project successfully.
Finally, I extend my heartfelt thanks to my friends and family members who
have been a source of inspiration and support throughout the project.
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CONTENTS
CHAPTER PARTICULARS PAGE NO
1 INTRODUCTION
1.1 INTRODUCTION ABOUT THE STUDY
1.2 Need of working capital
1.3 Objective of the study
1.4 Scope and design of the study
1.5 Limitations
2 ORGANISATIONAL PROFILE
2.1.Company profile
2.2. Company history
3 INDUSTRY PROFILE
3.1.Cement industry in India
3.2. Cement industry
4 THEORITICAL FRAME WORK
5 DATA ANALYSIS AND INTERPRETATION
6 CONCLUSION
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INTRODUCTION
Chapter1
1.1 DEFINITION OF WORKING CAPITAL:
In the words of Prof.S.C.Kuchhal, “Working capital has to be, regarded as one of
the conditioning factors in the long run operations of a firm which is often inclined
to treat it as an issue of short run analysis and decision-making”. In the words of
Shubin, “Working capital is the amount of funds necessary to cover the cost of
operating the enterprise”. In the words of Genestenbug, “Circulating capital means
current assets of a company that are changed in the ordinary course of business
from one form to another as for example from cash to inventories, inventories to
receivables, receivables into cash.
CONCEPTS OF WORKING CAPITAL:-
There are two concepts of working capital:
1.Gross working capital
2.Net working capital.
In the broad sense, the term working capital refers to the gross working capital and
represents the amount of funds invested in current assets. Current assets are those
assets, which in the ordinary course of business can be converted into cash with in
a short period of normally one accounting year. In a narrow sense, the term
working capital refers to the net working capital. Net working capital is the excess
of current assets over current liabilities.
Working capital = Current assets – Current liabilities.
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Net working capital may be positive or negative. When the current assets exceed
the current liabilities the working capital is positive and the negative working
capital results when the current liabilities are more than the current assets. Current
liabilities are those liabilities
which are intended to be paid in the ordinary course of business within a short
period or normally one accounting year out of the current assets or the income of
the business. The gross working capital concept is financial or going concern
whereas net working capital is an accounting of working capital. These two
concepts of working capital are not exclusive; rather both have their own merits.
Gross concept is very suitable to the company form of organization where there is
divorce between ownership, management and control. The net concept of working
capital may be suitable only for proprietary form of organizations such as sole-
trader or partnership firms. However, it may be made clear that as per the general
practice net working capital is referred to simply as working capital
1.2 NEED FOR WORKING CAPITAL
The need for working capital to run the day-to-day business activities cannot be
overemphasized. We will hardly find a business firm which does not require any
amount of working capital. Indeed, firms differ in their requirements of the
working capital. We know that a firm should aim at maximizing the wealth of its
shareholders. In its endeavor to do, a firm should earn sufficiently return from its
operations. Earning a steady amount of profit requires successful sales activity.
The firm has to invest enough funds in current assets for generating sales. Current
assets are needed because sales do not convert into cash instantaneously. There is
always an operating cycle involved in the conversion of sales into cash.
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TYPES OF WORKING CAPITAL:
Working capital may be classified in two ways:
a. The basis of concept.
b. On the basis of time.
On the basis of concept, working capital can be further classified into:
a. Gross working capital.
b. Net working capital.
On the basis of time, working capital can be further classified
a. Permanent or Fixed working capital.
b. Temporary or variable working capital.
Gross working capital
Gross working capital is represented by the total sum of all current assets of an
organization. The gross working capital is also known as current capital or
circulating capital.
Net Working capital
Net working capital is the difference between the current liabilities. The concept of
net working capital helps the management to look forward the permanent sources
for financing the working capital. The working capital management has to examine
the proportion of the current assets, which has to be financed by permanent capital
or long term, borrowings.
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Permanent working capital.
Permanent working capital is that part of capital, which is permanently ,locked up
in the circulation of current assets and in keeping it’s moving. It can be classified
into:
i. Regular working capital and
ii. Reserve margin working capital.
Regular working capital
It is the minimum amount of liquid capital needed to keep up the circulation of
from cash to inventories to receivables and back again into cash.
Reserve margin working capital
It is the excess over the need for regular working capital that should be provided
for contingencies such as raising prices, business depressions, and strikes, fibers,
unexpected severe competition and special operations such as experiments with
products or with the method of distribution and the like which can be undertaken
only if sufficient funds are available.
Variable working capital
The variable working capital refers and denotes that the amount of funds over and
above the fixed working capital to take care of seasonal shifts etc. This variable
working capital also referred to as fluctuating or temporary working capital and
should be financed by short-term sources of funds.
The variable working capital changes with the volume of business. It maybe sub-
divided into:
I .Seasonal.
ii. Special working capital.
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The capital required to meet the seasonal needs of industry is termed as seasonal
working capital. On the other hand the special working capital is that part of the
variable working capital which is required for financing operations such as
inauguration of extensive marketing campaigns and carrying out special jobs and
similar other operations that are outside the usual business of buying, fabricating
and selling.
Excess Working Capital
There are problems associated with excess working capital. Firstly, more funds
would make the management complacent and it may invest this money in
unnecessary accumulation of inventory resulting in locking of investment. There is
another possibility that the firm may think of speculation inventory items in
quantities more than needed and these gains may not be realized due to price
fluctuations. The excess working capital also known as surfeit of working capital,
which promotes accumulation of inventories, permissive, credit policies and slack
collection procedures .Due to excess working capital, complacency develops and
management efficiency deteriorates
Inadequate Working Capital
If working capital is not adequate, the organization will come across certain
problems. The adverse effects of inadequate working capital are business failures,
reduction in profitability and consequent decline in return on investment (ROI).
The company will not be able to take advantage of full capacity utilization and the
growth that is desired cannot be achieved when enough funds are not available at
the right point of time. All the operating plans cannot be successfully implemented
when funds are in short supply. In adequate working capital can also lead to
temporary insolvency of a firm.
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FACTORS DETERMINING THE WORKING CAPITAL
REQUIREMENTS:
The working capital requirements of a concern depend upon a large number of
factors such as nature and size of business, the character of their operations, the
length of production cycles, the rate of stock turnover and the state of economic
situation.
1. Nature or character of business
The working capital requirements of a firm basically depend upon the nature of its
business. Public utility undertakings like electricity, water supply and railways
need very limited working capital because they offer cash sales only and supply
services, not products and as such no funds are tied up in inventories and
receivables
2. Size of business/scale of operations
The working capital requirements of a concern are directly influenced by the size
of its business which may be measured in terms of scale of operations. Greater the
size of a business unit, generally large will be the requirements of working capital.
3. Production policy
In certain industries the demand is subject to wide fluctuations due to seasonal
variations. The requirements of working capital, in such cases, demand upon the
production could be kept either steady by accumulating inventories during slack
periods with a view to meet high demand during the peak season or the production
could be curtailed during the slack season and increased during the peak season.
4. Manufacturing process/length of production cycle
Longer the process period of manufacture, larger is the amount of working capital
required. The longer the manufacturing time, the raw materials and other supplies
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have to be carried for a longer period in the process with progressive increment of
labor and service costs before the finished product is finally obtained
5. Seasonal variations
In certain industries raw material is not available throughout the year. They have to
buy raw materials in bulk during the season to ensure an uninterrupted flow and
process them during the entire year.
6. Credit policy
The credit policy of a concern in its dealings with debtors and creditors influence
considerably the requirements of working capital .a concern that purchases its
requirements on credit and sells its products/services on cash requires lesser
amount of working capital.
7. Business cycle
Business cycle refers to alternate expansion and contraction in general an
activity .In a period of i.e. when the business is prosperous there is a need for
larger amount of working capital due to increase in sales, rise in prices, optimistic
expansion of business, etc.
8. Working capital cycle
The working capital cycle starts with the purchase of raw materials and ends with
the realization of cash from the sale of finished products. This cycle involves
purchase of raw materials and stores. Its conversion into stocks of finished goods
through work -in-progress with progressive increment of labor and service costs,
conversions of finished stock into sales, debtors and receivables and ultimately
realization of cash and this cycle continues again from cash to purchase of raw
material and so on.
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9. Price level changes
Changes in the price level also affect the working capital requirements. Generally
the rising prices will require the firm to maintain larger amount of working capital,
as more funds will be required to maintain the same current assets. The effect of
rising prices may be different for different firms.
10. Other factors
Certain other factors such as operating efficiency, management ability,
irregularities of supply, import policy, asset structure, importance of labor ,banking
facilities, etc, also influence the requirements of working capital.
OBJECTIVES:
promote the growth of the cement interest
To promote the customer interest
To identify newer application of cement usage
1.3 OBJECTIVES OF THE STUDY:
1. To Study working capital management in MADRAS CEMENTS Ltd.
2. To Examine an overview of working capital management.
3. To Analyze at the possible remedial measures to improve company’s working
capital performance in the near future.
4. To Evaluate the efficiency of the company in utilizing its Current Assets.
1.4 SCOPE OF THE STUDY
The scope of the study is limited only to MADRAS CEMNTS and is confined to 3
years i.e. 2008-2009 to 20010-2011 annual reports.
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DESIGN OF THE STUDY
METHODOLOGY
The present study is mainly about the working capital management of MADRAS
CEMENTS ltd. On the basis of the objectives of the study it was decided to use
ratio analysis and analysis of individual components of working capital as these are
universally accepted techniques for analyzing the short term liquidity position of
the firm.
SOURCES:
The study is based on the analysis of data from the annual reports of MADRAS
CEMENTS Ltd. The data used in the present study are mainly of two types:
primary data and secondary data.
1. The primary data is collected through the discussions made with the officials of
MADRAS CEMENTS Ltd.
2.The secondary data is collected through the annual reports published by the
company and company website.
1.5 LIMITATIONS:
The present study limits itself to the study of working capital management. In the
present study the analysis is mainly based on secondary data given in the annual
reports published by MADRASCEMENTS Ltd. The limitations prevailing in the
secondary sources are self evident in the study. Despite their weakness, they
continue to be the only source for comparison of the results of the analysis. The
present study is carried taking this into consideration.
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COMPANY
PROFILE
Page 14
Chapter 3
3.1 COMPANY PROFILE
Company Overview:
Madras Cements Ltd is the flagship company of the Ramco Group, a
well-known business group of South India. It is headquartered at Chennai. The
main product of the company is Portland cement, manufactured in five state-of-the
art production facilities spread over South India, with a current total production
capacity of 10.49 MTPA. The company is the fifth largest cement producer in the
country. Ramco Group is the most popular cement brand in South India. The
company also produces Ready Mix Concrete and Dry Mortar products, and
operates one of the largest wind farms in the country.
Integrated Cement Plants
Ramasamy Raja Nagar, Virudhunagar, Tamil Nadu
Alathiyur, Ariyalur District, Tamil Nadu
Ariyalur, Govindapuram, Ariyalur District, Tamil Nadu
Jayanthipuram, Andhra Pradesh
Mathodu, Chitradurga District, Karnataka
Grinding Units
Uthiramerur, Kanchipuram District, Tamil Nadu
Valapady, Salem District, Tamil Nadu
Kolaghat, Purba Medinipur District, West Bengal
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Packing Terminals
Nagercoil Packing Unit, Kumarapuram, Aralvaimozhi, Kanyakumari
District, Tamil Nadu
Hyderabad Packing Plant, Pochampally Road, Malkapur, Nalgonda District,
Andhra Pradesh
State-of-the-Art Research Centre
Ramco Research Development Centre (RRDC), Chennai
MISSION
• To continuously improve productivity through quality, technology renewal and
customer focused operations.
• To position ourselves in the cement business as a pace setter and grow in the
same and related business.
• To seek green field locations for growth on the basis of developed synergies of
the existing operations.
•To continuously seek quality enhancement in product, processes and responses to
various stakeholders.
•To update management practices on a continuous basis and maintain a culture of
professional management.
• To conserve, protect and enhance quality of life for our employees and
community.
• To preserve the credence in our motto "our real resources are the human assets".
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CORE VALUES AND BENEFITS:
• Customers continued satisfaction and the sensitivity to their needs is our source
of strength and security. If there is no customer, there is no business We do not
look at productivity as a game in numbers. We try to learn from others, be
committed to quality and always stay ahead in terms of technology
RAMCO GROUP COMPANIES:
•Madras cements limited
•Ramco industries limited
•Raja palayam mills limited Rajapalam, Tamilnadu
•Sri Ramco spinning mills limited Rajapalam, Tamilnadu
•Sundaram spinning mills limited Rajapalam, Tamilnadu
•Sri Vishnu sankar limited Rajapalam , Tamilnadu
•Ramaraju surgical cotton mills limited
•Ramco systems limited
•Ramco lanka (pvt) limited
•Harini textiles
Some corporate responsibilities of Ramco group:
•Raja charity trust
•C. Rama Swamy Raja education charity trust
•P.A.C Rama Swamy Raja Poly technique
•P.A Chinnaih Raja memorial higher secondary school
Page 17
•P.A.C.R Ammani animal’s higher secondary school
•Chinnaih vidyalaya P.A.C.R Raju matriculation higher secondary school
•S.S.R vidhya mandir Plans are on to build a hospital in Rajapalam equipped with
the most advanced medical facilities. The primary aim of this hospital would be to
provide free medical to workers scheme society. In order to have impetus to
ecology development a senior horticulturist is being appointed his services will be
extended to the farmers of nearby villages to help them ingoing various fruit and
vegetation using hybrid varieties. We are going ahead shortly for massive a
forestation of ISO acres of our land located at the entrance of our factory premises.
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COMPANY
HISTORY
Page 19
3.2 COMPANY HISTORY
In 1950's, investment in Cement Industry was not attractive due to price controls
and the massive investments required. Only those entrepreneurs who were not
profit minded but cared for country's development came forward in investing in
Cement Industry. When Shri Manubai Shah, Central Minister for Industries in late
fifties came to Madras to meet the Industrialists, he called upon Shri P A
CRamasamy Raja and requested him to start a cement factory in TN . This was
readily accepted by Shri PACR and this marked the birth of "MadrasCements Ltd"
in 1961.On the night of September 3, 1962, while the whole city slept, PACR lay
on his bed in the Madras General Hospital, seriously ill. As all his near and dear
watched with tears in their eyes, PACR summoned his son Ramasubrahmaneya
Rajha, to his bedside. "There is no more hope", he whispered :"You should take
care of everything from now". My main concern is for Madras Cements. I have
taken a lot of money as shares from well wishers I have not paid them back any
dividends as yet. This has to be taken care of immediately ...."PACR's last wish
was dutifully fulfilled by the present chairman Shri.P.R.Ramasubrahmaneya Rajah.
Today Madras Cements Ltd is not only one of the most respected cement
companies in the country but also leads in giving the best return for the investors.
With a cement capacity of 10.49 millions tons per annum,(Mtpa) the company is
the sixth largest producer of cement in India. It is also one of the largest wind
energy producer in the country with a capacity of 45 MW. The first plant of MCL
at Ramasamy Raja Nagar, near Virudhunagar in Tamil Nadu commenced its
production in 1962 with a capacity of 200tonnes, using wet process. In 70's, the
plant switched over to more efficient dry process. A second kiln was also added to
bring the total capacity to 12 lakh ton per annum. The second venture of MCL is its
Jayanthipuram plant near Vijayawada in A.P set up in 1987 . The 16 lakh ton per
annum plant employs the latest state of art technology. The third venture of MCL
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is at Alathiyur in TN set up in 1997 and expanded by addition of another line in
2001. The 30 lakh ton per annum plant is the most modern plant in the country .In
2000 , MCL acquired Gokul Cements situated in Mathod in Karnataka whose
capacity is 600 TPD. Being a eco-friendly company, MCL set up the Ramco
Winfarm in 1993 at Muppandal TN. This was followed by windfarms in Poolavadi
near Coimbatore in 1995 and Oothumalai in 2005. The combined capacity of these
two put together is about 45 MW .In the year 1999, MCL commissioned the most
sophisticated Ready Mix Concrete Plant in Medavakkam in South Chennai. In
2002, a state-of-art Dry Mortar plant was commissioned near Sriperumpudur,
Tamilnadu which manufactures dry mortar, cement based putty and tile fix
compound.
Birth of the first Ramco Venture
His visited Britain and other European countries to see firsthand working of the
mills. There he had the chance to meet many business magnates .He returned to
India full of ideas .After returning to Rajapalayam, he put his plans into action. To
start they yarn mill, he found that he needed Rs.5 lakhs, which in 1936 was a huge
sum. It was considered a Herculean task to raise such a big capital .But the
determined Raja was not deterred. He decided to make the “shareholders”
Rajapalayam Mills Ltd.,
Thanks to his illustrious background and his own reputation, he got the required
capital ready, in next to no time. On September 05, 1938, the State Minister for
labor, V.V. Giri inaugurated the mill and Rajapalayam Mills Ltd commenced
operations. There was no looking back for Ramasamy Raja after this. The Mill was
a grand success .He followed up this with other successful ventures. He started
Rama Raju Surgical Cotton Mills along with his son-in-law Rama Raju.
Madras Cements Ltd
Page 21
At that time, Cement was not considered as a favorable venture due to price
controls. Shri.Manubai Shah, Central Minister for Industries called upon
Ramasamy Raja and appealed to him to start a cement factory. This was how
Madras Cements Ltd came into being in 1961.Ramasamy Raja needed one crore as
capital. The State Government for the first time in the history of India, invested
Rs.10 lakhs An indication of the total trust and implicit faith the Government had
in him. Concern for Shareholders and Workers Ramasamy Raja had the well being
of the people upper-most in his mind .He was very particular that the funds of his
share holders be utilized usefully. He showed high concern for his workers. The
famous trade unionist G Ramanujam once said :
"In the case of Ramasamy Raja's companies, the workers are always thinking of
the growth of the company, the Raja always has the well being of the workers and
their families uppermost in his mind"
AWARDS & ACHIEVEMENTS:-
AWARDS:
4 Leaves Award
Centre for Science and Environment
National Award for Energy Conservation
Confederation of Indian industry
Best Energy Efficient Unit
National Council for Cement and Building Materials
Corporate Performance Award
Economic Times
Page 22
Best Improvement in Energy Performance
International Congress on Chemistry of Cement
The Analyst Award
The Institute of Chartered Financial Analysts of India
Best all round Industrial performance
Federation of AP Chambers of Commerce & Industries
Visvesvariah Industrial Award
All India Manufacturers Organization
Business Excellence Award
Industrial Economist
Export Performance Award
CAPEXIL
State Safety Awards
Tamil Nadu & AP Governments
Good Industrial Relations Award
Tamil Nadu & AP Governments
Page 23
Technology Overview
Madras Cements Ltd is a trend-setter in adopting state-of-the-art technology for the
manufacture of Cement, Ready Mix Concrete and Dry Mortar Products. MCL is
the first to bring the following technologies in South India's cement industry.
• The FUZZY Logic Software System for process Controls
• Pre-calciner technology
• Most Modern Programmable Logic Controllers (PLC)
• Surface Mining Technology
• Vertical Mills for Cement Grinding
• Latest and highly effective ESPs and Bag filters
• Advanced X-Ray technology for Quality Control
JAYANTHIPURAM UNIT
In 1986 the company ventured into the second unit Jayanthipuram in
Andhrapradesh 75 kilometers from Vijayawada towards Hyderabad with a
investment of Rs 100 corers per manufacture of Rs 7.50 lakhs tones of cement
per annum. This plant was commissioned in 1986 six months ahead
of schedule plans Madras cements is a ramco group of most ambitious
diversification had. It is a profitable company today. Two were process plans were
setup in 1987with a capacity of 600 tones to produce Portland cements. In
the1970’s totals with over was made to the dry process of manufacture. The single
largest dry kiln in India at the time of establishment with a capacity of 1200 tones
was installed at ramaswamy rajanagar in Tamilnadu, for the first time in India,
over the years the plant has modified and updated with preclaciner technology.
This has increased the capacity by 115% in 1993.Ramco group has setup its
Page 24
second and India’s most technological advances cement unit which started its
production in 1987 Jayanthipuram Krishna district and Andhra Pradesh with
1.1 million tons per annum. This is the first factory in India to be totally
computerized.It’soneof the most sophist icate plants in India with ful l
computer control led special software of F.L smiths and fuzzy logical system
from Denmark for kiln control. This flagship company of Ramco producer of
market cements with brand Ramco. The ki ln was gradually upgraded from
2300 TPD in 1986, 1994 and to 3200 TPD in1995. During this period raw
material and coal mill were also upgraded from 220 to 240 TPH and 26 to 30 TPH
respectively.
Horizontali m p a c t c r u s h e r ( H I C ) , w a s i n s t a l l e d i n 1 9 9 5 i n
c e m e n t m i l l c i r c u i t t o increase the output from 125 TPH to 180 TPH
and the cement mill was optimized in 1996.with this the capaci ty has
been increased to 11 lakh tones per annum. The plant has electrostatic
precipitators(ESP)anddeductingbagh o u s e s t o e n s u r e c l e a n a n d
p o l l u t i o n f r e e e n v i r o n m e n t . M C L h a s a n uncompromising attitude
towards the prevention of anti-environmental pollution.
The above up gradation of kiln and other mills was carried out with and investment
of Rs 25 crores. 2004-2005 in this period they build one power grid. It carried out
with an investment of Rs 10 crores.
EXPANSION
Slag grinding unit Madras cements have always stayed in the forefront of the
industry. Special task forces within the company keep track of the latest
international development in cement technology and promote action toad opt the
state of art technology. India generates about 70 million tones of Fly ash and 10
millions of slag annually. Disposal of Fly and slag problem to the environment.
Page 25
Concern for the environment and ecology is percolating very fast into customer
awareness globally and there by a check on eco-hostile products is becoming an
imperative exercise. Both the central and state governments are strongly
propagating to use these products in cement manufacture .A working group has
been constituted by the government of Andhra Pradesh to study the generation and
disposal of Fly ash and BD slag. Based on the recommendations of the working
group the government of Andhrapradesh issued a GO instructing all government
departments for utilization of 100% Pozzolana/slag cement, with in a period of 5
years. In line with the policies of the government and our philosophy of using
otherwise no usable materials like Fly ash and slag to produce value added blended
cement and there by conserve limestone and other materials like coal etc, and also
to save energy apart from being eco-friendly and creating clean atmosphere by
reducing carbon dioxide mission proud of serving our nation by preserving
minerals and maintaining clean atmosphere for our future generations.
MCL is the first to bring the following technologies in South India's cement
industry.
1.The FUZZY Logic Software System for process Control
2.Pre-calciner technology
3.Most Modern Programmable Logic Controllers (PLC)
4.Surface Mining Technology
5.Vertical Mills for Cement Grinding
6.Latest and highly effective ESPs and Bag filters
7.Advanced X-Ray technology for Quality Control
ISO certification
Madras cements limited, Jayanthipuram unit also got ISO 9002certification in may,
1998.
Page 26
SALIENT FEATURES OF MADRAS CEMENTS LIMITED
JAYANTHIPURAM:
For the first time in India the very latest computerized control system are
introduced in the Jayanthipuram unit for efficient operation on energy
conservation. The silent features of Jayanthipuram plant is furnished below:
•A stacker re-claimer for pre blending and continuous flow silo for below
•Vertical roller mills for grinding raw material and coal
•Five stage per heater for their mail efficiency per calcinatory for efficiency use of
low grade coal
•A scanner connected to a computer for refractory monitoring
•X ray analyzer for quality control on line process computerized control for
consistent quality
•Fuzzy logical software for kiln control
Electro static precipitator at 5 strategic points for pollution control
•Belt bucket elevators for energy conservations
DEPARTMENTS IN MCL
The following are the departments in Madras Cements Ltd.
1.Personnel department
2.Accounts department
3.Mines
4.IT
5.Stores and Material department
6.Quality control lab
7.Process department
Page 27
8. Engineering departments
-Electrical and Mechanical department
-Civil and Power plant
-Instrumentation
9.Cement dispatch section
10.Security liaison
DETAILS OF EMPLOYEES
Sl no catagories No of emply
1 officers 53
2 Officers prob with
grade
3
3 tarinee 7
4 Staff 70
5 Staff worker 2
6 Staff prob with
grade
7
7 trainee 1
8 Voucher staff 1
9 Voucher worker 4
10 workers 198
Page 28
INDUSTRY PROFILE
CEMENT INDUSTRY IN INDIA
The Cement industry in India has come a long way since 1914, when the first
cement plant was commissioned with a production level of 1000tons/ annum. The
first true Portland cement was manufactured in Calcutta presently called as
Kolkata. India is the second largest cement producer in the world. As cement is a
basic construction material with virtually no substitute, it is used worldwide for all
construction work. Thus the growth in the construction industry has a direct
relation with the production and consumption of cement.
India is the second largest cement producer in the world with a production level of
about 99 million tons (about 5% of world production ~2000 million tons). The
installed capacity is about 119 million tones and at an expected 10 % growth rate
the production is likely to grow to about158.5 million tons at the end of 2006-
2007.Over the years, the growth of the industry has been uneven. With
traditionally cement deficit regions covering the most of the major growth centers
of the country. Cement industry in India has made tremendous strides in
technological up gradation and assimilation of latest technology.
At present ninety three per cent of the total capacity in the industry is based on
modern and environment-friendly dry process technology and only seven per cent
of the capacity is based on old wet and semi-dry process technology. The major
players of Indian cement industry are Madras cements, ACC, India cements,
Gujarat Ambuja, Ultratech, Grasim, JK group, Jaypee group, Century textiles,
Birla Corporation, Lafarge. There is tremendous scope for waste heat recovery in
Page 29
cement plants and thereby reduction in emission level. Cement plants in the
country have mostly changed from the wet process to the energy efficient dry
process. In India, the cement factories are localized in the states of Tamil Nadu,
Madhya Pradesh, Gujarat, Bihar, Rajasthan, Karnataka and Andhra Pradesh.
Cement Industry
Cement industry is one of the important industries to country development in the
light of the main important basis for construction industry and also the important
indicator showing domestic economic growth. In the past, the domestic demand of
cement used to be up to 36 million tons. But, the severely negative effects from
economic crisis in 1997 have caused real estate and
construction industry subdued; the domestic demand of cement has shrunk and
been in oversupply atmosphere.
Until 2001–2003, the government has launched many economic actuating policies.
This has made real estate and construction industry recovered and the demand of
cement has been increasing gradually from 21 million tons in 2001 to 25 million
tons and 26.82 million tons in 2002 and 2003 respectively; and the price level is
higher in line with increase production cost.
Cement Industry originated in India when the first plant commenced
production in 1914 at Porbandar, Gujarat. The industry has since been growing
at a steady pace, but in the initial stage ,particularly during the period before
Page 30
Independence, the growth had been very slow. Since indigenous production was
not sufficient to meet the entire domestic demand, the Government had to control
its price and distribution statutorily. Large quantities of cement had to be imported
for meeting the deficit. The industry was partially decontrolled in 1982 and this
gave impetus to its pace of growth. Installed capacity increased to more than
double from 27 million tones in 1980-1981 to 62 million tones in 1989-1990.
The cement industry responded positively to liberalization policy and the
Government decontrolled the industry fully on 1st March 1989. From 1991
onwards cement industry got the status of a priority industry in schedule III of the
industry policy statement, which made it eligible for automatic approval for
foreign investment up to 51% and also for technical collaboration on normal terms
of payment of royalty.
DURING 2010-2011:
Growth in domestic cement demand is likely to remain strong, with the resumption
in the housing markets, regular government spending on the rural sector and
infrastructure spend accomplished by rise in the number of infrastructure projects
implemented by the private sector. Furthermore, it is expected that the industry
players will continue to increase their annual cement output in coming years and
India’s cement production will grow at a compound annual growth rate (CAGR) of
around 12 per cent during 2011-2012 - 2013-2014 to reach 303 Million Metric
Tons, according to Indian Cement Industry Forecast to 2012. Cement
Manufacturing Association (CMA) is targeting to achieve 550 MT capacities by
2020. A large number of overseas players are also expected to enter the industry in
the coming years as 100 per cent FDI is permitted in the cement industry. Our
country is the second major cement producing country following the China having
a total capacity of around 230 MT (including mini plants). However, on account of
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low per capita consumption of cement in the country (156 kgs/year as compared to
world average of 260 kgs) there is an enormous potential for growth of the
industry.
This chart represents the total cement production during(2009-
2010)
98.81
96.75
97.84
96
cement production cement despatches
The demand for cement mainly depends on the level of development and the rate
of growth of the economy. There are no close substitutes for cement and hence the
demand for cement is price inelastic. During the October – 2011, 14.78 MT were
produced and 14.38MT was consumed. For the FY 2011 – 2012 (Apr - Oct), MT
97.84 was consumed form the 98.91 MT produced. During the first half of the
year, there was marginally poor off take in cement demand due to passive
construction activity, which lead to excess supply, thus putting downward pressure
on realizations. This has been coupled with rise in input costs, especially prices of
coal and petroleum products. As a result, both the top line and bottom line have
been affected. This demand supply mismatch scenario is expected to prevail for
some time. Good agricultural income will support demand.
2010-11 2009-10
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ABOUT THE SECTOR:
Our country is the second major cement producing country following the
China; we have 137 large and 365 mini cement plants. Leading players in the
industry are Ultratech Cement, Gujarat Ambuja Cement Limited , JK Cements,
ACC Cement, Madras Cements etc. Cement is an adhesive that holds the concrete
together and is therefore vital for meeting economy’s needs of Housing &
accommodation and necessary infrastructure such as roads & bridges, schools,
hospitals etc. Hence, the cement is one of the fundamental elements for setting up
strong and healthy infrastructure of the country and plays an important role in
economic development and welfare of the nation.
Cement industry is being segmented regionally i.e. Northern, Central,
Western, Southern and Eastern. Cement, being a bulk item transporting it over
long distances can prove to be uneconomical as it attracts very high amount of
freight. Thus, it has resulted in cement being largely a regional play with the
industry divided into five main regions. As it is a freight intensive industry, the
segment is completely domestic driven and exports account for very negligible
percentage of the total cement off take.
Major players in Indian cement sector:-
Lafarge
Gujarat Ambuja Cement
Ultratech Cement
India Cements
Century Cements
Jaypee Group
Madras Cements
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Birla Corporation Limited
Jk cements
Dalmia cements
Chettinad cements
ANNUAL INSTALLED CAPACITY:
The Indian cement industry is highly fragmented with the top few accounting for
more than 50% of the industry capacity. The rest is distributed among the large
number of small players. The cement industry in India has come forward as the
second largest in the world, showing a total capacity of around 230 millions tones
MT (including mini plants).
This table represents the annual capacity of various cement comapies
Name of Cement Company
Annual
Installed
Capacity (MT)
Grasim Industries Ltd. 25.65
UltraTech Cement Ltd. 24.3
Jaiprakash Associates Ltd. 17.15
India Cements Ltd 14.05
Madras Cements Ltd. 10.49
Shree Cement Ltd. 12
Dalmia Cement 9
J.K. Cement Ltd. 8.42
Chettinad Cement 8.2
Century Textiles & Ind 7.8
Lafarge India Pvt. Ltd. 7.55
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Birla Corp. Ltd. 7.38
Kesoram Industries Ltd. 7.2
Penna Cement Ind 6.5
Binani Cement 6.25
Total capacity held by majors
(77% of the industry)
170.14
Others (23% of the industry) 51.68
Overview of the performance of the Cement Sector :-
The Indian cement Industry not only ranks second in the production of cement in
the world but also produces quality cement, which meets global standards.
However, the industry faces a number of constraints in terms of high cost of
power, high railway tariff; high incidence of state and central levies and duties;
lack of private and public investment in infrastructure projects; poor quality coal
and inadequate growth of related infrastructure like sea and rail transport, ports and
bulk terminals. In order to utilize excess capacity available with the cement
industry, the government has identified the following thrust areas for increasing
demand for cement.
Housing development programmers.
Promotion of concrete highways and roads.
Use of ready-mix concrete in large infrastructure projects.
Construction of concrete roads in rural areas under Prime Ministers Gram
Sadak Yojana.
The types of cement in India have increased over the years with the advancement
in research, development, and technology. The Indian cement industry is
Page 35
witnessing a boom as a result of which the production of different kinds of cement
in India has also increased. By a fair estimate, there are around 11 different types
of cement that are being produced in India. The production of all these cement
varieties is according to the specifications of the cement.
Some of the various types of cement produced in India are:
Clinker Cement
Ordinary Portland Cement
Portland Blast Furnace Slag Cement
Portland Pozzolana Cement
Rapid Hardening Portland Cement
Oil Well Cement
White Cement
Sulphate Resisting Portland Cement
In India, the different types of cement are manufactured using dry, semi-dry, and
wet processes. In the production of Clinker Cement, a lot of energy is required. It
is produced by using materials such as limestone, iron oxides, aluminum, and
silicon oxides. Among the different kinds of cement produced in India, Portland
Pozzolana Cement, Ordinary Portland Cement, and Portland Blast Furnace Slag
Cement are the most important because they account for around 99% of the total
cement production in India.
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THEORITICAL
FRAME WORK
Chapter 4
Working capital management:
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Working Capital is the firm’s holdings of current assets such as cash, receivables,
inventory & marketable securities. Every firm requires working capital for its day
to day transactions such as purchasing raw material, for meeting salaries, wages,
rents, rates, advertising etc.
Significance of Working Capital:
The world in which real firms function is not perfect. It is characterized by the
firms’ considerable uncertainty regarding the demand, market price, quality &
availability of its own products and those suppliers. While the firm has many
strategies available to address these circumstances, strategies that utilize
investment or financing with working capital accounts often offer a substantial
advantage over the techniques. The importance of working capital management is
reflected in the fact that financial managers spend a great deal of time in managing
current assets and current liabilities like
Arranging short term financing
Negotiating favorable credit terms
Controlling the movement of cash
Administrating accounts receivables
Monitoring investment in receivables.
Decisions concerning the above areas play a vital role in maximizing the overall
value of the firm. Once decisions concerning these areas are reached, the level of
working capital is also determined in active decision sense, but falls out as residual
from the decision just made.
The management of working capital plays an important role in maintaining the
financial health during the normal course of business. This critical role can be
enunciated by examining the flow of resources through the firm. By far the major
flow is the working capital cycle.
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This is the loop (previous page) which starts at the cash and the marketable
securities account, goes through the current account as direct labor and materials
which are purchased and use to produce inventory ,which in turn is sold and
generates accounts receivables, which are finally collected to replenish cash. The
major point to notice about this cycle is that the turnover or velocity of resources
through this is very high related to the other inflows and outflows of the cash
account. There are two concepts of working capital namely;
Gross Working Capital and Net Working Capital. Gross Working Capital, simply
called as working capital refers to the firm’s investment in current assets. Current
assets are the assets, which in ordinary course o business can be converted into
cash within an accounting year. Current assets include cash and bank balances,
short term loans and advances bills receivables, sundry debtors, inventory, prepaid
expenses, accrued incomes, money receivable ( within 12months).
The following are the few advantages of adequate working capital in the
business:
Cash Discount: Adequate working capital enables a firm to avail cash discount
facilities offered to it by the suppliers. The amount of cash discount reduces the
cost of purchase.
Goodwill: Adequate working capital enables a firm to make prompt payment.
Making prompt payment is a base to create and maintain goodwill.
Ability to face crisis: The provision of adequate working capital facilities to meet
situations of crisis and emergencies. It enables a business to with stand periods of
depression smoothly.
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Credit-Worthiness: It enables a firm to operate its business more efficiently
because there is not delay in getting loans from banks and other on easy and
favorable terms.
Regular supply of raw materials: It permits the carrying of inventories at a level
that would enable a business to serve satisfactory he needs of its customers. That is
it ensures regular supply of raw materials and continuous production.
Expansion of markets: A firm which has adequate working capital can create
favorable market condition i.e. purchasing its requirements in bulk when prices are
lower and holding its inventories for higher. Thus profits are increased .
Increased productivity.
Research programs.
High morale.
Problems of inadequate working capital:-
Firm may not be able to take advantage of profitable business opportunities.
Production facilities cannot be utilized fully.
Short-term liabilities cannot be paid because of non-availability of funds. Its low
liquidity may lead to low profitability. In the same way, low profitability results in
low liquidity.
It may not be able to take advantages of cash discounts. Credit worthiness of the
firm may be damaged because of lack of liquidity. Thus it may be lose its
reputation; thereafter a firm may not be able get credit facilities.
Working capital policy:
Working capital management policies have a great effect on firm’s profitability,
liquidity and its structural health. A finance manager should therefore, chalk out
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appropriate working capital policies in respect of each competent of working
capital so as to ensure high profitability, proper liquidity and sound structural
health of the organization.
In order to achieve this objective the financial manager has toper form basically
following two functions:
Estimating the amount of working capital.
Sources from which these funds have to be raised.
Operating Cycle:
Working capital is required because of the time gap between the sales and their
actual realization in cash. This time gap is technically terms as operating cycle of
the business.
In case manufacturing company, the operating cycle of time necessary to complete
the following cycle of event.
Conversion of cash into raw materials.
Conversion of raw materials into work in progress.
Conversion of work in progress into finished goods.
Conversion of finished goods into accounts receivables
Conversion of accounts receivables into cash.
This cycle is continuous phenomena. In case of “Trading Firm” the operating
cycle will include the length of time required to:
Cash into inventories.
Inventories into accounts receivables.
Accounts receivables into cash.
In case of “Financing Firm” the operating cycle includes the length of time taken
for 1 year.
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Conversion of cash debtors, and
Conversion of debtors into cash
IMPORTANT OR ADVANTAGES OF ADEQUATE WORKING
CAPITAL:
1. Solvency of the business: Adequate working capital helps in maintaining
solvency of the business by providing uninterrupted flow of production.
2. Goodwill: Sufficient working capital enables a business concern to make prompt
payments and helps in creating and maintaining goodwill.
3. Easy loans: A concern having adequate working capital, high solvency and good
credit standing can arrange from banks and other an easy and favorable terms.
4. Cash discount: Adequate we also enable a concern to avail cash discount on the
purchases and hence it reduces costs.
5. Regular supply of raw material: Sufficient working capital ensures regular
supply or raw material and continuous production.
6. Regular payment of salaries and wages and other day-to-day commitments:
A company which has ample working capital can make regular payment of
salaries, wages and other day-to-day commitments which raises the moral of its
employees increase their efficiency, reduces wastage’s and costs and enhance
production and profits.
7. Exploitation of favorable market condition: Only concern with adequate we can
exploit favorable market conditions such as purchasing its requirement in bulk
when the prices are lower and by holding its inventories for higher.
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8. Ability to face crisis: Adequate working capital enables a concern to face
business crisis in emergency such as depression because during such periods,
generally, there is much pressure on working capital.
9. Quick and regular return on investment: Every investor wants a quick and
regular return his investment sufficiency of working capital enables a concern to
pay quick and regular dividends to its investors as there may not be much pressure
to plough back profits. This gains the confidence to raise additional funds in the
future.
10. High morale: Adequacy of working capital creates an environment of security,
confidence, high morale and creates overall efficiency in a business.
EXCESS OR INADEQUATE WORKING CAPITAL
Every business concern should have adequate working capital run its business
operation. It should have neither redundant or excess working capital nor
inadequate nor shortage or working capital. Both excess as well as short working
capital positions are bad for any business. However, out of the two, it is the
inadequacy of working capital, which is more dangerous from the point of view of
the firm.
DISADVANTAGES OF REDUNDANT OR EXCESSIVE
WORKING CAPITAL
Excessive working capital means idle funds which earn no profits for the business
and hence the business cannot earn a proper rate of return on its investments.
When there is a redundant working capital, it may lead to un necessary purchasing
and accumulation of inventories causing more chances of theft, waste and loses.
Page 43
Excessive working capital implies excessive debtors and defective credit policy
which may cause higher incidence of bad debts. It may results into overall
inefficiency in the organization.
When there is excessive working capital, relation with banks and other financial
institution may not be maintained.
Due to low rate of return on investment, the value of share may also fall. The
redundant working capital gives rise to speculative transactions.
DISADVANTAGES OR DANGERS OF INADEQUATE
WORKING CAPITAL
A concern, which has inadequate working capital, cannot pay its short-term
liabilities in time. Thus it will lose its reputation and shall not be able toget good
credit facilities.
It cannot buy its requirements in bulk and cannot avail of discount, etc.It
becomes difficult for the firm to exploit favorable market condition andundertake
profitable projects due to lack of working capital.
The firm cannot pay day-to-day expenses of its operations and itscreates
inefficiencies, increases costs and reduces the profits of thebusiness.
It becomes impossible to utilize efficiently the fixed asset due to non-availability
of liquid funds .The rate of return on investment also falls withthe shortage of
working capital.
CHARACTERISTICS OF CURRENT ASSETS:
In the management of working capital, there are two characteristics of working
capital
(1) short life span
Page 44
(2) swift transformation into other asset forms.
Current assets have a short life span. Cash balances may be held idle for a week or
two, accounts receivable may have a life span of 30 to 120 days, and inventories
may be held for 30 to 100 days. The life span of current assets depends upon the
time required in the activities of procurement, production ,sales, and collection and
the degree of synchronization among them.
Each current asset is swiftly transformed into other asset forms cash is used for
acquiring raw materials ; raw materials are transformed into finished goods (this
transformation may involve several stages of work-in-progress);finished goods,
generally sold on credit are converted into sundry debtors, on realization, generate
cash.
The short life span of working capital components and their swift transformation
from one form into another has certain implications Decisions relating to working
capital management are repetitive and frequent.
The difference between profit and present value is insignificant. The close
interaction among working capital components implies that efficient management
of one component cannot be undertaken without simultaneous consideration of
other components
The investment in working capital is influenced by four key events in the
production and sales cycle of the firm
Purchase of raw materials
Payment of raw materials
Sale of finished goods
Collection of cash for sales Above diagram depicts these events on the cash flow
line. The firm begins with the purchase of raw materials which are paid for after a
delay which represents
Page 45
the accounts payable period. The length of operating cycle of a manufacturing firm
takes into account.
Inventor Conversion period (ICP)
Debtor Conversion period (DCP)
Payment Deferred Period (PDP)
The Inventory Conversion Period is the total time needed for producing and
selling the product .The firm converts the raw material in to finished goods and
then sells the same. The time lag between the purchase of raw materials and the
sale of finished goods is the inventory period.. Typically, it includes:
Raw Material Conversion Period (RMPC)
Work-in-Progress Conversion Period (WIPCP)
Finished Goods Conversion Period (FGCP)
The Debtor Conversion Period Is the time required to collect Outstanding amount
from customers. Customers pay their bills sometimes after the sales. The period
that elapses between the date of sales and the date of collection of receivables is
the accounts payable period or debtor’s period. The total of inventory conversion
period and debtor collection period is referred to as Gross Operating Cycle
(GOC).
The Payments Deferred Period is the length of time the firm is able to defer
payment on various resource purchases. The difference between the gross
operating cycle and payment-deferred period is Net Operating Cycle
(NOC).Symbolically,
ICP = RMCP + WIPCP + FGCP
GOC = ICP + DCP
NOC = GOC – PDP
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The duration of the cycle with reference to working capital is:
Longer the cycle ----- Higher the working capital
Shorter the cycle ----- Lower the working capital.
It is helpful to monitor the behavior of overall operating cycle and its individual
components. For this purpose, time-series analysis and cross-section analysis may
be done. In time-series analysis, the duration of the operating cycle and its
individual components is compared over a period of time for the same firm. In
cross-section analysis, the duration of the operating cycle and its individual
components is compared with that of other firms of a comparable nature.
Page 47
DATA
INTERPRETATION
&
ANALYSIS
CHAPTER 5
Page 48
5.1 GROWTH RATE OF MADRAS CEMENTS LTD
This chapter is allotted to analysis the growth of madras cements ltd .the analysis is
carried out of with following variables cost of equity, cost of debt, cost of
preference shares, retained earnings.
The variable selected to study the growth are
1. Fixed assets
2. Net current assets
3. Share holders fund
4. Earnings per share and dividend per share
5. Sales
6. Loan funds
7. Capital employed
5.1.1 FIXED ASSETS
Fixed asset, also called noncurrent assets, are assets that are expected to produce
benefits for more than one year. These assets may be tangible or intangible fixed
assets include items such as land, building, plant, machinery, furniture, and
computers. Intangible fixed assets include items such patent, copy right,
trademarks, and good will.
Tangible fixed assets are reported in the balance sheet at their net block
value, which is simply the gross value less accumulated depreciation represents the
allocation of the cost of a tangible fixed assets to various accounting periods that
benefits from its use. Likewise, intangible fixed assets are reports their net book
value, which is simply the gross value accounting period that benefits from its use.
The following table presents the data relating to the fixed assets
Years fixed assets (Rs in cr) Growth rate in %
2006-2007 1258 100
Page 49
2007-2008 2482 197
2008-2009 3635 289
2009-2010 4010 319
2010-2011 4489 357
Average growth rate 252
The following chart represents the data relating to the fixed assets
2006-2007 2007-2008 2008-2009 2009-2010 2010-20110
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
100 197 289 319 357
growth rate of fixed assets
fixed assets (amt in cr)Growth rate in %
INTERPRETATION
It is observed from the above chart that the Fixed Assets of MADRAS CEMENTS
Ltd. For past five years (2007-2011) have been increased continuously ,it shows
that Fixed Assets is properly used and maintain. The average company growth rate
of fixed assets increased at 252 %. So the company is performing well.
5.1.2 NET CURRENT ASSETS
Page 50
An indication of how much capital is being generated or used up by day to day
activities .It is also known as working capital or current capital., and it is calculated
by the following,
current assets minus current liabilities
CURRENT ASSETS
Current assets are cash and other assets expected to be converted to cash, sold, or
consumed either in a year or in the operating cycle. These assets are continually
turned over in the course of a business during normal business activity.
1. Cash and cash equivalents
It is the most liquid asset, which includes currency, deposit accounts and
negotiable instruments (e.g., money orders, cheque, and bank drafts).
2. Short term investments
Include securities bought and held for sale in the near future to generate
income on short term price differences (trading securities).
3. Receivables
Usually reported as net of allowance for uncollectable accounts
4. Inventory
Trading these assets is a normal business of a company. The inventory value
reported on the balance sheet is usually the historical cost or fair market value,
whichever is lower. This is known as the “lower of cost or market” rule.
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The following table presents the data relating to the Net Current Assets.
Years Net current assets
(Rs in cr)
growth rate in %
2006-2007 2202 100
2007-2008 3777 171
2008-2009 4734 215
2009-2010 5894 268
2010-2011 5088 231
Average growth rate 197
The following chart represents the data relating to Net Current Assets.
2006-2007 2007-2008 2008-2009 2009-2010 2010-20110
1000
2000
3000
4000
5000
6000
7000
100 171 215 268 231
growth rate of current assets
Net current assetsgrowth rate in %
INTERPRETATION
It is observed from the above chart that the Net Current Assets of MADRAS
CEMENTS Ltd. has been increased continuously form 2007 to 2010 and it is
slightly decreased in 2011, it shows that Net Current Assets is properly maintained.
The company average growth rate of Net Current assets decreased at 197%
Page 52
5.1.3 SHARE HOLDERS FUND:
Share holders funds are the balance sheet value of the shareholders interest in a
company. For company (as opposed to group) accounts it is simply all assets less
all liabilities. For consolidated group accounts the value of minority interests
should also be excluded. The addition of minority interests gives us “shareholders
fund including minority interests”. Further adjustments give us total equity.
The balance sheet value of assets does have some significance for valuation.
However, changes in share holders’ funds are also important. The most obvious
reason for shareholders funds to change is that profits have been made and
retained, however changes can also be caused by gains or losses that do not go
through the profit and loss revaluations.
This is why both the statement of total recognized gains and losses (STRGL) and
the note to the accounts reconciling beginning and ending shareholders funds are
important; the more so because looking at changes that have not gone through the
P & L can alert investors to some manipulations of the accounts. For example, a
consistent accumulation of unrealized losses on investments may be a cause for
concern
Page 53
The following table presents the data relating to the share holders fund.
Years Shareholders fund (RS
in cr)
Growth rate in %
2006-2007 666.36 100
2007-2008 953.86 143.09
2008-2009 1260.20 189.18
2009-2010 1558.16 233.93
2010-2011 1734.51 260.36
Average growth rate 185.312
The following chart represents the data relating to the share holders fund.
2006-2007 2007-2008 2008-2009 2009-2010 2010-20110
200
400
600
800
1000
1200
1400
1600
1800
2000
100 143.09 189.18 233.93 260.36
growth rate of shareholders fund
Shareholders fund (amt in cr)Growth rate in %
INTERPRETATION
It is observed from the above table that the shareholders fund of MADRAS
CEMENTS Ltd. For past five years (2007-2011) has been increased
continuously .This shows that shareholder funds is properly used and maintained.
The average growth rate of shareholder funds increased at 185.312%. So company
is functioning in satisfactory level.
Page 54
5.1.4 EARNINGS PER SHARE:
Earning measures the profit available to the equity holders on a per share basis,
that is the amount they can get on every share hold. it is calculated by dividing the
profits available to the shareholders by the number of equity shares. The profits
available to the share holders are represented by net profits after taxes and
preference dividend.
The following tables present the data relating to the earnings per share.
a. Table with (shares with a face value of Rs100)
Years EPS(amt in Rs) Growth rate in %
2006-2007 255 100
2007-2008 343 134.50
Average growth rate 117.25
b. (Shares with a face value of Rs 1)
Years EPS (amt in Rs) Growth rate in %
2008-2009 15 100
2009-2010 15 100
2010-2011 9 60
Average growth rate 86.66
The following chart represents the data relating to the earning per share.
Page 55
2008-2009 2009-2010 2010-20110
20
40
60
80
100
120
100 100
60
growth rate of EPS
EPS (amt in Rs)Growth rate in %
INTERPRETATION1.43
It is observed from the above chart that the Earnings per share of
MADRAS CEMENTS Ltd. has been increased for first two years and decreased in
the rest three years it shows that Earnings per share must be properly maintain.
The Average Company Growth rate of Earnings per Share is at 86.66 %. So
company is functioning in satisfactory level.
5.1.5 DIVIDEND PER SHARE
The net profits after taxes belong to shareholders. But the income, which
Therefore, a large number of present and potential investors may be interested in
DPS, rather than EPS. DPS is the earnings distributed to ordinary shareholders
divided by the number of ordinary shares outstanding.
DPS= proposed dividend
No of shares
The following table shows that data relating to the dividend per share.
Page 56
(Shares with a face value of Rs 1)
Years Dividend per share
( amt in Rs)
Growth rate in %
2008-2009 2 100
2009-2010 2 100
2010-2011 1.25 62.5
Average growth rate 87.5
The following chart represents the data relating to the dividend per share.
2008-2009 2009-2010 2010-20110
20
40
60
80
100
120
100 100
62.5
growth rate of dividend per share
Dividend per share ( amt in Rs)Growth rate in %
INTERPRETATION1.43
It is observed from the above chart that the dividend per share of
MADRAS CEMENTS Ltd was stable for two years (2009-2010),.then it is
decreased in current year(2011). The Average Company Growth rate of Earnings
per Share increased at 87.5 %. So company is functioning in satisfactory level
5.1.6 NET SALES
Page 57
A sale is the pinnacle activity involved in selling products or services in return for
money or other comparison. It is an act of completion of a commercial activity.
The “deal is closed”, means the customer has consented to the proposed product or
service by making full or partial payment (as in case of installments) to the seller.
A sale is completed by the seller, the owner of the goods. It starts with consent (or
agreement) to an acquisition or appropriation or request followed by the passing of
title (property or ownership) in the item and the application and due settlement of a
price, the obligation for which arises due to the sellers requirement to pass
ownership, being a price the seller is happy to part with ownership of or any claim
upon the item. The purchaser, though a party to the sale does not execute the sale,
only the seller does that. To be precise the sale completes prior to the payment and
gives rise to the obligation of payment. If the seller completes the first two above
stages (consent and passing ownership) of the sale prior to settlement of the price
the sale is still valid and gives rise to an obligation to pay.
The following table shows that data relating to the sales value.
Years Net sales (amt in cr) Growth rate in%
2006-2007 1567 100
2007-2008 2005 127.9
2008-2009 2529 161.3
2009-2010 2807 179.1
2010-2011 2620 167.1
Average growth rate 147.08
The following chart shows that data relating to the net sales value.
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2006-2007 2007-2008 2008-2009 2009-2010 2010-20110
500
1000
1500
2000
2500
3000
100 127.9 161.3 179.1 167.1
growth rate os net sales
Net sales (amt in cr)Growth rate in%
INTERPRETATION1.43
It is observed from the above chart that the net sales of MADRAS
CEMENTS Ltd has been increased continuously form 2006 to 2007 and it is
decreased little in 2011. The Average Company Growth rate of sales increased at
147.08 %. So company is functioning in satisfactory level
5.1.7 LOAN FUNDS
Under certain circumstances and at the specific request of a borrower, the bank
may agree to the use of surplus loan amounts in the borrower’s loan account
(commonly referred to as “surplus loan funds”) for purposes that are in accordance
with or even outside the broad objectives of the project, provided these funds are
not required to meet other needs of the project. The authority to approve
reallocation differs according to the purpose.
Surplus loan funds comprise those funds that are available (pr are expected to be
available) in the loan account of a borrower after arrangements for procurements of
all goods or services and payments for any other expenditures to cover any
contingencies), and it is clear that there will still be funds remaining.
The following table presents the data relating to the loan funds.
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Years Loan funds(amt in cr) Growth rate in %
2006-2007 677 100
2007-2008 1635 241.50
2008-2009 2463 363.81
2009-2010 2566 379.02
2010-2011 2791 412.25
Average growth rate 299.316
The following chart shows that data relating to the loan funds.
2006-2007 2007-2008 2008-2009 2009-2010 2010-20110
500
1000
1500
2000
2500
3000
100241.5
363.81 379.02 412.25
Chart Title
Loan funds(amt in cr)Growth rate in %
INTERPRETATION
It is observed from the above table that the loan fund of MADRAS CEMENTS
Ltd. For past five years (2007-2011) has been increased continuously, it shows
that loan funds is properly used and maintained. The average company growth rate
is increased at 299.316%. So company is functioning in good level.
5.1.8 CAPITAL EMPLOYED
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Capital employed has many definitions and is not easily analyzed. In general, it
represents the capital investment necessary for a business to function.
Consequently, it is not a measure of assets, but of capital investment: stock or
shares and long term liabilities. Capital employed can be defined as equity plus
loans which are subject to interest of one can say that it is total assets less non
bearing interest liabilities.
Capital employed can be defined as share holder’s funds (i.e. share capital and
reserves) plus creditors > 1 year (long – term liabilities) plus provisions for
liabilities and charges. This must equal total assets less current liabilities. Capital
employed is the value of the assets that contribute to a company’s ability to
generate revenue, i.e. their liquidity.
The following table shows that the data relating capital employed.
Years Capital employed ( amt
in cr)
Growth rate In %
2006-2007 874 100
2007-2008 1936 221.51
2008-2009 2898 331.57
2009-2010 3113 356.17
2010-2011 3408 389.93
Average growth rate 279.836
The following chart shows that the data relating capital employed.
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2006-2007 2007-2008 2008-2009 2009-2010 2010-20110
500
1000
1500
2000
2500
3000
3500
4000
100 221.51 331.57 356.17 389.93
Chart Title
Capital employed ( amt in cr)Growth rate In %
INTERPRETATION
It is observed from the above table that the net capital employed of
MADRAS CEMENTS Ltd. For past five years(2007-2008) has been increased
continuously .This shows that capital employed is properly used and maintained.
The average company growth rate of capital employed is increased at 256.72%. So
company is functioning in good level.
RATIO ANALYSIS
5.2 ratios
Ratio Analysis is describing the significant relationship which exists between
various items of a balance sheet and a profit and loss account of a firm. As a
technique of financial analysis, accounting ratios measure the comparative
significance of the individual items of the income and position statements It is
possible to assess the profitability, solvency and efficiency of an enterprise through
the technique of ratio analysis.
1. Profitability: has the business made a good profit compared to its turnover?
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2. Return Ratios: compared to its assets and capital employed, has the business
made a good profit?
3. Liquidity: does the business have enough money to pay its bills?
4. Asset Usage or Activity: how has the business used its fixed and current
assets?
5. Gearing: does the company have a lot of debt or is it financed mainly by
shares?
RATIO ANALYSIS OF MADRAS CEMENTS DURING
2009-2011
Mar 11 Mar10 Mar09
Profitability Ratios
Operating Profit Margin
(%)24.12 30.88 30.75
Profit Before Interest And
Tax Margin (%)15.55 23.81 25.14
Gross Profit Margin (%) 15.69 23.90 25.31
Cash Profit Margin (%) 16.24 19.50 19.72
Adjusted Cash Margin (%) 16.24 19.50 19.72
Net Profit Margin (%) 7.97 12.55 14.27
Adjusted Net Profit Margin
(%)7.97 12.55 14.27
Return On Capital
Employed (%)9.60 16.53 17.64
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Return On Net Worth (%)12.36 23.01 29.22
Return on Assets Excluding
Revaluations71.73 64.58 52.26
Return on Assets Including
Revaluations71.73 64.58 52.26
Return on Long Term
Funds (%)10.06 17.70 19.53
Liquidity And Solvency Ratios
Current Ratio 0.73 0.70 0.60
Quick Ratio 0.60 0.64 0.63
Debt Equity Ratio 1.61 1.65 1.95
Long Term Debt Equity
Ratio1.49 1.47 1.67
Debt Coverage Ratios
Interest Cover 3.12 4.52 5.97
Total Debt to Owners Fund 1.61 1.65 1.95
Financial Charges
Coverage Ratio4.69 5.79 7.18
Financial Charges
Coverage Ratio Post Tax4.09 4.63 5.53
Management Efficiency Ratios
Inventory Turnover Ratio 18.18 23.84 23.00
Debtors Turnover Ratio 15.50 22.89 33.41
Investments Turnover Ratio 18.18 23.84 23.00
Fixed Assets Turnover
Ratio0.50 0.58 0.65
Total Assets Turnover 0.58 0.68 0.68
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Ratio
Asset Turnover Ratio 0.50 0.58 0.65
Profit & Loss Account Ratios
Material Cost Composition 22.10 21.22 21.86
Imported Composition of
Raw Materials Consumed1.43 4.33 4.08
Cash Flow Indicator Ratios
Dividend Payout Ratio
Net Profit16.41 15.75 15.33
Dividend Payout Ratio
Cash Profit8.01 10.13 11.12
Earning Retention Ratio 83.42 84.25 84.70
Cash Earning Retention
Ratio
91.94 89.87 88.90
Adjusted Cash Flow
Times6.50 4.67 4.91
Mar '11 Mar '10 Mar '09
Earnings Per Share 8.87 14.86 15.28
Book Value 72.89 65.48 52.96
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INTERPRETATION
Debt equity ratio:
Debt to equity measures how much money a company should safely be able
to borrow over long period of time . The numerator of this ratio consists of all debt,
short-term as well as long term, and the denominator consists of net worth plus
preference capital
0.57
0.58
0.59
0.6
0.61
0.62
0.63
0.64
0.65
Series1
Debt equity ratio was 1.65 in 2009-2010 and it is 1.61 in 2 010-2011.which is
decreased by 0.4 %
To lower the debt/equity ratio a company reduced its debt load or increased
company assets (Total assets increased 4525.66 crores in 2010-11 as against
4124.67 crores in 2009-10). In the short term this may be good, but you need to be
aware how this was done.
2008-09 2009-10 2010-11
DEBT TO EQUITY
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Increase debt can be useful if it is used to finance increased operations provide the
company generate more earnings than it would have without this outside financing
and these increase earnings is greater than the debt cost (interest). Debt provides
more leverage and the shareholders benefit as more earnings being spread among
the same amount of shareholders. However, normally there is some risk in
expanding operations and the cost of debt financing may outweigh the return that
the company generates on the debt through investment and business activities and
become too much for the company to handle. This can lead to bankruptcy.
Fixed Assets Turnover This ratio measures sales per rupee of investment in fixed
assets. This ratio is supposed to measure the efficiency with which fixed assets are
a high ratio indicates a high degree of efficiency in asset utilization and a low ratio
reflects inefficient use of assets.
0.57
0.58
0.59
0.6
0.61
0.62
0.63
0.64
0.65
Series1
2008-09 2009-10 2010-11
FIXED ASSETS TURNOVER
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Fixed asset turnover ratio is low as compared to the industry or past years of data
for the firm, it means that sales are low(sales are decreased by 2971.26 crores in
2010-11 as compared to 3115.21 in 2009-10) or the investment in plant and
equipment is too high(Fixed assets are increased by 3945.96 in 2010-11 as
compared to 3692.52 in 2009-10). This may not be a serious problem if the
company has just made an investment in fixed asset to modernize, for example.
If the fixed asset turnover ratio is too high, then the business firm is likely
operating over capacity and needs to either increase its asset base (plant, property,
equipment) to support its sales or reduce its capacity.
Inventory Turnover. Inventory turnover illustrates how well a company manages
its inventory levels. If inventory turnover is too low, it suggests that a company
may be overstocking or overbuilding its inventory or that it may be having issues
selling products to customers. All else equal, higher inventory turnover is better.
Inventory Turnover = (Cost of Sales) / (Average Inventory)
0.57
0.58
0.59
0.6
0.61
0.62
0.63
0.64
0.65
Series1
Inventory Turnover Inventory turnover illustrates how well a company manages
its inventory levels. Inventory turnover of madras cements is too low compared
than previous year(it decreased by 18.18 in 2010-11 as compared to last year 23.84
in 2009-10), it suggests that a company may be overstocking or overbuilding its
2008-09 2009-10 2010-
INVENTORY TURNOVER
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inventory or that it may be having issues selling products to customers. All else
equal, higher inventory turnover is better.
Accounts Receivable Turnover The accounts receivable turnover ratio measures
how effective the company's credit policies are. If accounts receivable turnover is
too low, it may indicate the company is being too generous granting credit or is
having difficulty collecting from its customers. All else equal, higher receivable
turnover is better.
Accounts Receivable Turnover = Revenue / (Average Accounts Receivable)
1 2 30.57
0.58
0.59
0.6
0.61
0.62
0.63
0.64
0.65
Series1
Accounts Receivable Turnover. The accounts receivable turnover ratio measures
how effective the company's credit policies are. If accounts receivable turnover is
too low(decreased by 15.50 in 2009-10 as compared to 22.89 in 2010-11), it may
indicate the company is being too generous granting credit or is having difficulty
collecting from its customers. All else equal, higher receivable turnover is better.
Accounts Payable Turnover. You'll notice that the accounts payable turnover ratio
uses a liability in the equation rather than an asset, as well as an expense rather
than revenue. Accounts payable turnover is important because it measures how a
company manages paying its own bills. High accounts payable turnover may be a
2008-09 2009-10 2010-11
ACCOUNTS RECEIVABLE TURNOVER
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signal that a firm isn't receiving very favorable payment terms from its own
suppliers. All else equal, lower payable turnover is better.
Accounts Payable Turnover = (Cost of Sales) / (Average Accounts Payable)
Accounts Payable Turnover. You'll notice that the accounts payable turnover ratio
uses a liability in the equation rather than an asset, as well as an expense rather
than revenue. Accounts payable turnover is important because it measures how a
company manages paying its own bills. High accounts payable turnover(increased
by 30.50 in 2009-10 as compared to 19.36 in 2010-11)it may be a signal that a firm
isn't receiving very favorable payment terms from its own suppliers. All else equal,
lower payable turnover is better.
Current ratio The current ratio is the most basic liquidity test. It signifies a
company's ability to meet its short-term liabilities with its short-term assets. A
current ratio greater than or equal to one indicates that current assets should be able
to satisfy near-term obligations. A current ratio of less than one may mean the firm
has liquidity issues.
Current Ratio = (Current Assets) / Current Liabilities )
1 2 30.57
0.58
0.59
0.6
0.61
0.62
0.63
0.64
0.65
Series1
2008-09 2009-10 2010-11
CURRENT ASSETS TO CURRENT LIABILITIES
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Current ratio provides a measure of degree to which current assets cover current
liabilities. The excess of current assets over current liabilities provides a measure
of safety margin available against uncertainty in realization of current assets and
flow of funds. The ratio should be reasonable. It should neither be very high or
very low. Both the situations have their inherent disadvantages. A very high
current ratio implies heavy investment in current assets which is not a good sign as
it reflects under utilization or improper utilization of resources .A low ratio
endangers the business and puts it at risk of facing a situation where it will not be
able to pay its short term debt on time. If this problem persists. it may affect firms
credit worthiness adversely .Normally, it is advocated to have this ratio as
2:1.current ratio of madras cements is too low 0.73:1 as against to 2:1 as ideal ratio
so company has some problem to meet out their debt.
Quick Ratio The quick ratio is a tougher test of liquidity than the current ratio. It
eliminates certain current assets such as inventory and prepaid expenses that may
be more difficult to convert to cash. Like the current ratio, having a quick ratio
above one means a company should have little problem with liquidity. The higher
the ratio, the more liquid it is, and the better able the company will be to ride out
any downturn in its business. Quick Ratio = (Cash + Accounts Receivable +
Short-term or Marketable Securities)/(Current Liabilities)
1 2 30.57
0.58
0.59
0.6
0.61
0.62
0.63
0.64
0.65
Series1
2008-09 2009-10 2010-11
QUICK RATIO
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Quick ratios have decreased from the year 2009 to 2010, in 2009 it was very low
then of the last years and the reason is because madras cements ltd has invested in
long term assets and decreased its inventory and current liabilities .quick ratio has
improved in 2010 because madras cements now started investing in short term
assets and its investment in fixed assets has decreased than of last year more over
company has increased amount of short term loans to run operations. madras
cements though has positive quick ratios, but decreasing manner has to be
considered(2009-2010 it was 0.64, and in 2010-2011 it became 0.60)so company
needs to focus on relatively median mode of investment in both fixed and current
assets to raise the quick ratio till a well considerable point in view of investor.
Cash Ratio The cash ratio is the most conservative liquidity ratio of all. It only
measures the ability of a firm's cash, along with investments that are easily
converted into cash, to pay its short-term obligations. Along with the quick ratio, a
higher cash ratio generally means the company is in better financial shape.
Cash Ratio = (Cash + Short-Term or Marketable Securities) / (Current
Liabilities)
Cash Ratio’s has gradually decreased over the years from 2009-2011, cash ratio
has dropped with the madras cements keeping low cash and investing proportions
of it for long term and short term assets, cash ratio decrease in 2009 is due to the
raise of investment in fixed assets than of the last year, whereas short term
liabilities and payables have increased .Madras Cements Ltd has low cash ratio if
talked in context with investors view point, to raise up cash ratio they should invest
in short term investments that can raise cash in short terms.
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Operating Margin Operating margin captures how much a company makes or
loses from its primary business per dollar of sales. It is a much more complete and
accurate indicator of a company's performance than gross margin, since it accounts
for not only the cost of sales but also the other important components of operating
income , such as marketing and other overhead expenses.
Operating Margin = (Operating Income or Loss) / Sales
Operating profit margin of the Madras Cements Ltd was 632.16 in 2010-2011 as
compared to 867.12 in 2009-2010 and weak sales growth in the export market. The
company sold 2971.56 Mtpa in 2010-2011 which it is 4.61% lower than the
previous year of 2009-2010.
The company has earned low operating profit margin during 2010-2011 despite
higher input cost pressures. The total expenses shot up to Rs 2005.99 crores in
2010-2011 compared to Rs 1947.26 crores in 2009-10 due to rise in the commodity
prices. To mitigate the high input costs risk, the company has focused its sales
growth from its export business. During the year 2010-2011 the 6825 tonnes of
cement was exported to Sri Lanka. The export turnover of the Company for the
year was Rs.1.86 crores..
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Chapter 6
Conclusion:-
The overall performance of Madras Cements Limited is getting on a lower track.
The total turnover of the company has registered a decline of 4.64% in 2010-2011
as compared to the 2009-2010. also the operating profits for the year were fall by
27.09% mainly on due to sluggish market. Company maintains good liquidity
position.
The recent boom in the housing, construction and retail sector in India coupled
with continued thrust of the Government on infrastructure projects like metro
projects in Chennai and Bangalore is expected to sustain healthy growth of cement
demand. During the year 2010-2011, Indian cement industry has registered a
growth of 15.45% in terms of cement production. Almost all the major players in
the industry including Madras Cements Ltd have announced substantial increase in
capacity and the possibility of oversupply situation cannot be ruled out.
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